What Happened When We Tried Dropshipping our Handmade Products
This article is a guest post for our Skill Share series from artisan Walnut Studiolo, a husband-and-wife leathercrafting business based in Oregon. This is the fourth post in a five-post series. Read the others here.
Picking up where we left off: in the mid/late 2010’s, there was a period of a few years when we were getting approached by a new dropshipping site almost every week. There was a big marketing push by gurus and website builders to sell the dropshipping idea almost like a get-rich-quick scheme.
When considering other alternatives to Etsy, you might find yourself being approached by dropshipping sites. Similar to a marketplace, dropshipping sites promise vendors like us sales, an audience, and marketing support, while requiring little to no work in setting up.
In this post, we’ll talk about our experience working with dropshipping sites as alternatives to Etsy.
What is Dropshipping
Dropshipping is a common and commonly-pushed e-commerce model where an entrepreneur creates a shopping website but doesn’t actually hold any of the inventory or do any of the shipping: instead they have each individual vendor ship from their respective businesses to the customer directly. They handle marketing and customer service, and they take a hefty commission from each sale.
The difference between a dropshipping site and a marketplace is somewhat subtle. Qualitatively, it’s in the degree of control and amount of space that a vendor has over their brand’s presence on the site. Quantitatively, it’s in the workflow and ownership of orders and customers during transactions.
the DifferenceS Between Dropshipping Sites AND Marketplaces
On a dropshipping site, a vendor’s products are on the site but they may not have any access or control. It may be viewed as a courtesy or service, but oftentimes the entrepreneur does the work of listing the vendor to the site on their behalf — hopefully with the vendor’s permission.
There might be a collection page or blog feature telling the vendor’s story, but the site is clearly organized around the products, not the vendors. The vendor’s products are usually mixed in with all the products.
Dropshipping order funds are collected by the marketplace and immediately turned into a purchase order with the vendor, and paid according to payment terms.
Vendors do not have any rights to customer details, other than what is required to print out a packing slip and shipping label.
On a marketplace, the vendor has their own “storefront”, usually with basic information about the vendor, written and managed by the vendor from a backend sign-in. Vendors use the backend to manage their own store, own content, and own products.
Marketplace order funds are collected by the marketplace and transmitted to the vendor after they’ve shipped.
Vendors may or may not have access to customer details, depending on the marketplace. Some, like Amazon, only allow vendors to contact the customer through on-site messaging, while some, like Etsy, will allow vendors to email customers.
Confusingly, dropshipping sites often call themselves “marketplaces” in their marketing materials as a generic term. You have to look closely at the business proposal with a critical eye to decide for yourself what is really going on.
How To Assess a Dropshipping Site
When deciding to work with a dropshipping site, we learned the devil is in the details. There are important logistics to consider and you have to carefully decide whether their workflow works with yours.
Here’s our shortlist of questions:
- What are the payment terms?
- How much is their commission?
- Who pays for shipping and how is it charged?
- How do orders get transmitted, and what is the turnaround time?
- Which product(s) do they want to list and whose decision is it?
- How do product details get imported to the site, and who does the work?
- Do they have any packaging requirements, such as special stickers or inserts?
Lessons Learned from Participating in Dropshipping Sites
In our experience, the answers to our questions above have been the critical hallmarks of success and red flags in working with a dropshipping sites. Following each questions is a brief discussion of our experience with it.
What are the payment terms?
It’s easier to work with dropshipping sites that pay upfront. But some ask for payment terms. They’ll send you payment for the order 15 days, 30 days, 45 days or even more after you’ve already shipped it.
Are your financials strong enough to extend credit terms to this company? And do you think you can trust them to pay their bills?
How much is their commission?
We’ve seen dropshipping site commissions range anywhere from 10% to 50%.
At its worst, a dropshipping arrangement is one in which you are getting paid wholesale to provide a retail experience. If the company is requiring wholesale commissions (50% or greater), then the rest of their package better be pretty compelling to consider it.
Managing the relationship with the company, being able to fulfill and ship orders on their terms, and worrying about your product listings, is all work that you have to do to be on their site, without getting the benefit of a relationship with the customer. Take these costs into account when deciding whether you want to do business with them.
If the site brings in a healthy amount of sales and you can afford the commission and additional terms, it might still be worth it to your business.
Who pays for shipping and how is it charged?
They should have an easy process for determining and reimbursing shipping label costs and carriers. If they don’t do carrier-calculated rates, then this can be a mess and has the potential to really wreck your costs. Many expect you to offer free shipping, which may not work with your business model.
Some want you to use their labels with their own carrier, which may or may not work for your business (for example, one required us to use their UPS labels, but UPS charged us $20 to do a rural pick-up and the closest drop-off was 45 miles away = not worth it).
One included a fixed rate reimbursement of something like $4/package. You have to consider what will work for your business.
How do orders get transmitted, and What is the Turnaround Time?
They need to have a solid process already figured out for order fulfillment logistics. If they are vague about this, that is a red flag.
If their plan is to simply email you an order with a shipping label attached, that’s not really a great plan. Emails, especially from new websites, often end up in spam folders. (Be sure to add their domain to your trusted senders list.)
Ideally there should be a backend you can log into. Even if you miss emails, you can check in to see what’s going on.
Turnaround time is another thing to think about: do they require you to ship within a very quick timeframe, and is that do-able? Some have reasonable expectations, such as 7 days, and some let you set your turnaround time for more flexibility.
Which product(s) do they want to list and whose decision is it?
As a vendor, know that the dropshipping website is not your business, it is someone else’s. You’re not in control of anything. You’re really just a manufacturer-for-hire, even if one of your selling points is your handmade process.
You may have some say on which products you’re willing to list, but it’s a negotiation and the site may not want to list the same ones.
How do product details get imported to the site, and who does the work?
Better-designed dropshipping sites will make it easy to list with them by using an import feature for Shopify or other major e-commerce websites such as BigCartel or WooCommerce (or Etsy).
However, sometimes those integrations only work one-way. We worked with one dropshipping site who was able to import our listings from Shopify, which we thought was great. But then we realized it wasn’t syncing. When we made changes to our products on our end Shopify, we had to remember to go to the dropshipping site and make the updates manually. The products were uploaded as just a snapshot in time, so description changes and inventory weren’t updated.
Some will offer to do the work for you, but then do a bad job of explaining or categorizing your products, which could harm sales.
Some require you to do all the work, which makes their marketplace look good, but results in no sales and ends up being a waste of your time.
Do they have any packaging requirements, such as special stickers or inserts?
Some sites, like Houzz, will have packaging requirements. They’ll send you stickers and shipping inserts that you have to stock, keep track of, re-order, and incorporate into the packaging workflow.
This brands your work as theirs and is an extra labor step.
Most new dropshipping sites fail, so be choosy about which ones you work with.
For us, too many of them were “dead ends”. After some amount of fuss and work and negotiation, they didn’t last and resulted in few or even no sales, and a lost opportunity for us to work on something else that would have made our business stronger.
Keep in mind that with venture capital funded companies, the terms are bound to change, and quickly, once they get off the ground. We worked with one dropshipping site that started out as a fair deal, but within a year had increased the commission, added a monthly fee, and stopped reimbursing shipping costs. (By then, we hadn’t had a single sale since the first month anyway, so we withdrew our products.)
In our experience, we had more success with larger, established sites like Houzz, a niche marktetplace for interior design and furniture. 99% of the time dropshipping sites have been a distraction from building something better, a misuse of hours that resulted in very few sales.
Thankfully, in recent years we think we’ve begun to see a general fatigue in the dropshipping model. It’s not as easy for them as it was cracked up to be — perhaps because so many of us vendors got burned out by bad deals and fly-by-night companies in the mid- to late-2010’s.
Dropshipping sites may work for some businesses, particularly if they find a vibrant one that works well with their product niche, and the commission isn’t so high that it makes doing all the work of order management, fulfillment, and shipping uneconomical.
But we have found little success with dropshipping sites overall. In the next post, we’ll talk about experience working with other marketplaces, including indie start-ups.
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